The present invention relates generally to inventory management, and more particularly, using such system to optimize inventory management with multiple management strategies.
A reliable inventory management system is important for any business involved with sale of goods or services. To manage inventory resources properly, businesses must accurately keep track of inventory count, maintain a sufficient amount of inventory on stock, and timely re-stock an appropriate amount of inventory. It is extremely difficult to maintain just enough inventory on stock that sustains a sufficient amount of stock to satisfactorily fulfill customers' orders without over-stocking. A delicate balance is necessary to avoid over-stocking, which poses many risks such as tying up funds and incurring maintenance costs, including storage space expense, spoilage and damage, and depreciation of inventory value. Maximizing the efficiency of the inventory management is extremely critical and can play a major role in the success of a company. See, Gary McWilliams, Double Barrels Aimed At Dell, Business Week 6 (Dec. 9, 1996).
In addition to maintaining a proper level of inventory on stock, timeliness of restocking is critical in planning for future orders. Many factors influence the timing of orders. For example, specially manufactured items or seasonal goods may require advance notices. Also important is the availability of alternate suppliers and substitutability of goods.
There is a wide array of inventory management strategies available, for example, make-to-order, Kanban, and fixed-rate supply. A detailed description of the Kanban method is provided in Monden & Yasuhiro, Toyota Production System (2d ed. 1993). These inventory management strategies implement different re-order points and replenishment quantity. For example, under the make-to-order strategy, there is no stock in a warehouse and products are manufactured whenever a customer places an order. On the other hand, under the Kanban strategy, a small stock is maintained in the warehouse and inventory is replenished as it is depleted.
Many businesses today use automated software tools to facilitate inventory management. Automated systems apply a single strategy to the entire portfolio of products offered to customers. Single strategy inventory management systems, however, have many disadvantages. First, applying a single strategy to the entire inventory portfolio fails to take into account the differing needs and importance of various types of goods. For example, some goods may require a large quantity of inventory stock in the warehouse while other goods may be manufactured or replenished only when customers order the goods.
Second, single strategy systems do not allocate resources and risks according to the type of goods, needs, and importance. For instance, even if an inventory item runs out, it may not pose a great deal of problem for the business if the inventory can be easily replaced in a relatively short period of time. However, if a specific inventory requires a significant lead time or can only be manufactured by a limited number of sources, inventory mismanagement of that inventory item poses a greater risk. Accordingly, inventory management systems should be designed to accommodate specific characteristics and requirements of various types of inventories.
Currently, there appears to be no system implementing multiple management strategies. Such a system, however, would enable a business to tailor the management system according to its needs and inventory portfolio. Specifically, the system would allow businesses to tailor the inventory system to accommodate the management of the portfolio on a product-by-product basis based upon factors such as number of orders, lead times, weekly volumes, and other factors related to processing orders and maintaining inventory.
Forecasting future demand is another key factor in properly managing the inventory portfolio. Studies on general forecasting techniques discuss how to mathematically forecast a particular set of historical data. There are also commercially available statistical forecasting software packages to estimate future demand. Studies, however, have not examined identifying decision criteria that dictate whether an item or process is "forecastable." Existing inventory management systems predict future demand of all items in an inventory portfolio regardless of the type of item or amount of historical data available for a particular item. Such systems, however, lead to large forecast errors and significantly reduce the ability to manage the inventory with accuracy.
Therefore, it is desirable to provide an inventory management system that accommodates special characteristics and requirements of various types of inventory portfolios.
In addition, it is desirable to combine multiple management strategies in a single inventory management system to provide an accurate and optimal inventory management tool.
It is further desirable determine whether an inventory item is forecastable.